AIG, the US-government owned insurance titan, is close to giving Prudential the thumbs-up to restructure the $35.5bn (£24bn) purchase of its AIA business in Asia.
AIG chief executive Robert Benmosche yesterday told employees in New York the deal would go ahead despite the UK regulator’s concerns over the enlarged group’s capital strength.
In March, Prudential agreed to buy AIA for $25bn in cash, $2bn in preferred shares and $8.5bn in stock and equity-linked securities. It is understood AIG may waive $2bn of the cash portion of the payment to help Prudential soothe the Financial Services Authority’s fears over capital, in return for a $2bn hybrid bond that would be repaid at a later date.
Added to the rearrangement of a senior debt facility with advisers Credit Suisse, JPMorgan and HSBC, the contortion could be enough to satisfy the FSA’s stress tests.
Prudential would be able to go ahead with the $21bn rights issue it was embarrassingly forced to postpone at the 11th hour last week.
Prudential and AIG declined to comment.
Prudential’s share price has risen since last week’s calamity as investors bet the deal will collapse. Chief executive Tidjane Thiam needs to persuade at least 75 per cent of shareholders to back the rights issue, a threshold analysts think will be difficult to reach given management’s clumsy handling of the transaction so far.
Short-selling of the insurer’s stock fell to a ten-day low of 6.4 per cent yesterday as traders switched their positions from betting on a successful takeover, and a share price fall, to betting on a failure and shares rising on consequent takeover hopes.
Prudential’s shares yesterday closed 2.4 per cent lower at 541p.